Rasenack ex rel. Tribolet v. Aig Life Ins. Co.

• Decision Date: 02 November 2009
• Docket Number: No. 07-1521.,07-1521.
• Citation: 585 F.3d 1311
• Parties: Hans-Gerd RASENACK, by and through Jessica TRIBOLET, his duly appointed Guardian and Conservator; and Jessica Tribolet, as duly appointed Guardian and Conservator of Hans-Gerd Rasenack, Plaintiffs-Appellants, v. AIG LIFE INSURANCE COMPANY; and AIG Claim Services Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

585 F.3d 1311

Hans-Gerd RASENACK, by and through Jessica TRIBOLET, his duly appointed Guardian and Conservator; and Jessica Tribolet, as duly appointed Guardian and Conservator of Hans-Gerd Rasenack, Plaintiffs-Appellants, v. AIG LIFE INSURANCE COMPANY; and AIG Claim Services Inc., Defendants-Appellees.

No. 07-1521.

United States Court of Appeals, Tenth Circuit.

November 2, 2009.

John Case of Benson & Case, LLP, Denver, CO, for Plaintiffs-Appellants.

James D. Kilroy (Katrin Miller Rothgery and Jessica E. Yates with him on the brief) of Snell & Wilmer L.L.P., Denver, CO, for Defendants-Appellees.

Before BRISCOE, SEYMOUR and PORFILIO, Circuit Judges.

SEYMOUR, Circuit Judge.

This action arises under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq. Hans-Gerd Rasenack seeks accidental paralysis and rehabilitation benefits from AIG Life Insurance Company, the insurer, and AIG Claim Services, the plan administrator (collectively, "AIG"). The district court reviewed the administrator's denial of benefits under an arbitrary and capricious standard and granted summary judgment for AIG. We reverse and remand.

I.

On May 21, 2003, Mr. Rasenack, then forty-eight years old, was struck as a pedestrian by a hit-and-run driver while saying goodnight to his friends in front of his home. The collision launched Mr. Rasenack approximately twenty-five feet through the air. He was severely injured and remained in a coma for approximately three weeks.

On June 6, 2003, Mr. Rasenack was transferred to Kindred Hospital. He was transferred again on July 7, this time to Craig Hospital, where he was admitted to a brain rehabilitation program. Mr. Rasenack remained at Craig Hospital until October 2003, and received outpatient treatment thereafter. Dr. Alan Weintraub, the Medical Director of the Brain Injury Program at Craig Hospital, served as Mr. Rasenack's regular treating physician throughout the course of his treatment. For the sake of clarity and brevity, we save the remaining details of Mr. Rasenack's medical treatment for Part III of the opinion.

At the time of the accident, Mr. Rasenack was insured under an accidental death and dismemberment ("AD & D") policy issued to his employer, Marriott International, Inc., by AIG Life Insurance Company and administered by AIG Claim Services. Both the insurer and the administrator are owned by American International Group. Mr. Rasenack purchased the AD & D coverage through payroll deductions. In addition to accidental death and dismemberment, the policy provides an accidental paralysis benefit. At issue here is the policy's hemiplegia provision.¹ The policy defines "hemiplegia" as "the complete and irreversible paralysis of upper and lower limbs of the same side of the body." Aplt. App. at 359. The policy defines "limb" as the "entire arm or entire leg." Id. The policy does not define "paralysis." Id. The covered loss—i.e., hemiplegia—must occur within one year of date of the accident.

The policy provides AD & D benefits for hemiplegia in the amount of one half of the principal sum. Mr. Rasenack's principal sum is $248,000. The policy also provides a rehabilitation benefit for expenses incurred within two years of the accident up to a maximum of $10,000. The rehabilitation benefit is only payable where the insured "suffers an accidental dismemberment or an accidental paralysis for which an Accidental Dismemberment or Paralysis benefit is payable under ... the Policy." Id.

Jessica Tribolet, Mr. Rasenack's spouse and duly appointed guardian and conservator, filed a claim for AD & D and rehabilitation benefits on July 21, 2004,² asserting that Mr. Rasenack "suffer[ed] what the summary plan describes as `loss of use' of both of his legs as well as his left arm." Id. at 624. The Plan provides that claims will be processed within ninety days unless special circumstances warrant an exception; it instructs that in no event will processing take longer than 180 days. These deadlines track the ERISA regulations. On November 15, 2005, sixteen months after Ms. Tribolet filed the claim, AIG denied it, concluding that Mr. Rasenack did not suffer from "hemiplegia" as defined by the policy.

Ms. Tribolet submitted a timely administrative appeal on January 13, 2006.³ The Summary Plan Description ("SPD") provides that AIG will render a decision within sixty days unless special circumstances require an extension of an additional sixty days. On August 3, 2006, several months past the four-month deadline for a decision on appeal, Ms. Tribolet and Mr. Rasenack filed a complaint in federal district court seeking a declaration that Mr. Rasenack is entitled to benefits and an order requiring AIG to pay him benefits under 29 U.S.C § 1132. On August 31, 2006, AIG belatedly denied the administrative appeal.⁴

On cross motions for summary judgment, the district court denied Mr. Rasenack's motion and granted AIG's. The court determined, as a matter of first impression, that the proper standard of review of the administrative decision was arbitrary and capricious, not de novo as plaintiffs urged. The court held that AIG's interpretation of the term "hemiplegia" was reasonable, and that there was substantial evidence that Mr. Rasenack's condition did not meet the policy's definition.

On appeal, Mr. Rasenack argues (1) the correct standard of review of the plan administrator's decision is de novo and (2) the administrative record establishes that he suffers from hemiplegia as defined by the policy and is therefore eligible for benefits.

II.

We review de novo the "district court's determination of the proper standard to apply in its review of an ERISA plan administrator's decision...." DeGrado v. Jefferson Pilot Fin. Ins. Co., 451 F.3d 1161, 1167 (10th Cir.2006). ERISA authorizes a judicial action challenging an administrative denial of benefits but does not specify the standard of review that courts should apply. See 29 U.S.C. § 1132(a)(1)(B). Applying the principles of trust law, the Supreme Court resolved this question in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), holding that "a denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." The parties do not dispute that the Plan grants AIG this discretionary authority. The Plan provides, "The insurance company retains sole and absolute final discretion to determine eligibility for benefits, to construe the terms of the policy and to resolve any factual issues relevant to benefits." Aplt. App. at 329.

Under trust principles, a deferential standard of review is appropriate when trustees actually exercise a discretionary power "vested in them by the instrument under which they act." Firestone, 489 U.S. at 111, 109 S.Ct. 948. Following Firestone, we made clear in Gilbertson v. Allied Signal, Inc., 328 F.3d 625, 631 (10th Cir.2003), that "not only must the administrator be given discretion by the plan, but the administrator's decision in a given case must be a valid exercise of that discretion." Accord Jebian v. Hewlett Packard Co., 310 F.3d 1173, 1176-77 (9th Cir.2002); Nichols v. Prudential Ins. Co. of Am., 406 F.3d 98, 109 (2d Cir.2005); Gritzer v. CBS, Inc., 275 F.3d 291, 296 (3rd Cir.2002); Matuszak v. Torrington Co., 927 F.2d 320, 322-23 (7th Cir.1991) (applying de novo review where administrator only offered "reasons" for denial during the course of litigation); Restatement (Second) of Trusts § 187, cmt. (h) ("[I]f the trustee without knowledge of or inquiry into the relevant circumstances and merely as a result of his arbitrary decision or whim exercises or fails to exercise a power, the court will interpose.").

The question before us in Gilbertson was "whether a plan administrator with discretionary authority whose delay in deciding a claim results in its being `deemed denied' is entitled to judicial deference." Gilbertson, 328 F.3d at 631. We concluded that deference was not required, explaining:

It follows that where the plan and applicable regulations place temporal limits on the administrator's discretion and the administrator fails to render a final decision within those limits, the administrator's "deemed denied" decision is by operation of law rather than the exercise of discretion, and thus falls outside the Firestone exception.

Id. By the same analysis, in this case the administrator failed to render a final decision within the temporal limits. Thus, the remedies were "deemed exhausted" by operation of law rather than the exercise of administrative discretion, and Firestone's rule of deference does not apply.⁵

In holding so, we are not persuaded by AIG's argument that the 2002 amendments⁶ to ERISA somehow abrogated the Gilbertson rule. The 2002 amendments replaced in part the "deemed denied" provision—which permitted a claimant to file suit if the administrator failed to respond to a claim within a certain prescribed period—with the following paragraph:

In the case of the failure of a plan to establish or follow claims procedures consistent with the requirements of this section, a claimant shall be deemed to have exhausted the administrative remedies available under the plan and shall be entitled to pursue any available remedies under section 502(a) of the Act on the basis that the plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim.

29 C.F.R. § 2560.503-1(k)(l) (2002). This change does not alter our conclusion that when an administrator violates the statutory deadlines incorporated into the plan, Firestone deference no longer applies. The 2002 amendments have, however, called into question the continuing validity of the substantial compliance test we have used to avoid creating a rule that would...